Short Range Outlook : July 2015

Demand for long steel products continues to be reasonable in many areas like America or Europe but is slowing down in countries in the Middle East and North Africa (MENA) region due to seasonal reasons.

Pressure from Chinese goods intensifies

A new wave of offers for all kinds of Chinese origin steel is adding to the pressure and increasing competition. All the while Chinese consumption has stopped growing. Exports provide a margin for Chinese mills so it has increased. Comparitively at the end of June, domestic billet prices in China were at about US$240/mt and reinforcing bars were priced at about US$280/mt ex-works, excluding taxes. As a result, exports were up by 45 percent during the first five months of the year. Aggressively priced billet offers from China have also been forcing prices downwards in the international market, although prices in areas like the EU are showing more resilience. The imbalance in the market is definitely moving in the direction of excess supply.

Such a situation leads Turkish suppliers to look for alternatives and those are not so plentiful.

Imports into Europe made more difficult by weakness of euro

Low activity in Europe and the weakness of the euro do not help importers and – so far – have helped keep prices stable in most EU countries. However, prices are now at levels that may attract the one or the other buyer. Competition is tough.

Chinese effect also exerts strong pressure on deep sea scrap markets

Scrap demand outside of Europe and the US has deteriorated over the past month as Chinese steel products have become increasingly competitive. This has put strong pressure on the deep sea scrap markets. Capacity utilization at scrap-based mills is being reduced. Demand for material remains decent in the European and US markets but pricing will be adjusted downwards in accordance with the rest of the markets.

Margins being squeezed everywhere

Low prices in the market are destroying margins very rapidly, and businesses in many areas, including China, are showing negative results and entering into problematic financial territory. The issue of the sustainability of these businesses will force production cuts. The question is when this will happen.

How long will Chinese banks continue to provide finance?

It is clear that the Chinese mills themselves will not cut back, but the question is how long the Chinese banks will continue to provide finance. The Chinese banks will soon complain to Beijing and some measures will have to be taken.

EU mills expected to adjust outputs

EU and Turkish producers will realize that by not matching production to demand their positions have gotten worse. The EU market had 18-24 months of stability, but now prices are trending downwards as supply pressure is increasing. The EU mills will probably begin to adjust output once the second quarter numbers are out. India, Southeast Asia, the MENA countries and Turkey are facing difficult times ahead due to Chinese price competition.

Even CIS mills struggle to compete with Chinese

In fact, the competition in the market has been ratcheted up to unsustainable levels by the prices of Chinese origin materialss. Even the CIS mills seem to be refraining from trying to take business away from Chinese origin offers. The vast amounts of excess steel capacity in China will mean that we will likely continue to see trade barriers and antidumping measures against Chinese products be discussed and implemented.

Second half expected to be even more challenging amid extreme supply pressure

Overall, the current situation in the market is unstable. The outlook is bearish amid extreme supply pressure despite reasonable consumption. There are too many political and financial issues around the globe which leave a bitter taste and worry the markets. Significant adjustments in prices of scrap, pig iron, hot briquetted iron (HBI) and billet are expected. The second half of the year is going to be more challenging compared to the first half.